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The Weekly Rap! Friday May 10th, 2013

This Sunday is Mother’s day, but did you know the modern holiday of Mother’s Day was first celebrated in 1908, when Anna Jarvis held a memorial for her mother in Grafton, West Virginia. She then began a campaign to make “Mother’s Day” a recognized holiday in the United States. I’m sure there was a lobbyist from Hallmark in there somewhere. She succeeded in 1914 when Congress actually agreed on something and designated the second Sunday in May as Mother’s Day. So Happy Mother’s day to all you fantastic Mothers out there! We wouldn’t be here without you.

The economy continues to limp along fueled mostly by Fed intervention, but apparently that’s enough to boost stocks into record territory. The Dow last traded at 15,060 breaking another record high this week. The S&P 500 is trading at 1,627. Gold is trading lower at $1,433 an ounce, while oil futures at $94.60 a barrel. Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.68/Gal.

Yields on 10-year Treasury notes, which move inversely to prices, last traded at 1.89%. 30-year Treasury Bond yields last traded at 3.09%. Mortgage Bonds have broken out of the downward trend (higher rates) they’ve been trading in since Dec 5, 2012 and continue to have established a higher range (lower rates). The MBS (Mortgage Backed Security) FNMA 30-year fixed 3.0% coupon, containing 3.25-3.625% mortgages, pretty much the benchmark or how rate sheets are priced these days is currently trading at 104.125 a tad worse than where we were last Friday. Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate. The higher the number (price), the better the rate.

In economic news this week; it’s been a very light week of economic news so I get to rant a bit. The reader’s digest version is the economy continues to drag its feet as slow as possible without going backwards.

Home prices rose 1.9% in March, marking the 13th straight monthly rise and a 10.5% year-on-year gain, CoreLogic reported. Excluding distressed sales, the monthly gain was 2.4%. Strong gains here in the western region, including a 22.2% year-on-year gain in Nevada and a 17.2% gain in California, lead the advance. Only four states saw year-on-year drop: Delaware, Alabama, Illinois and Virginia. CoreLogic’s pending home price indicator points to a 1.3% monthly and 9.6% year-on-year gain for April.

The Fed reported that consumers increased their debt in March by $8.0 billion, While this may seem like a large increase, it’s the smallest increase since last July. The increase is well below February’s $18.6 billion pace and was smaller than the $16 billion increase expected by Wall Street. Monthly debt rose at a 3.4% annual rate in March, less than half the 8.0% pace in the prior month. This is the biggest percentage decline since last July. The fear is that consumer spending may not hold up in the face of payroll tax increases.

In the latest Fed survey (the April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices), only a few American banks reported that they eased standards on prime residential mortgages over the past three months. This summary is based on responses from 68 domestic banks and 21 U.S. branches and agencies of foreign banks.

Fear of “putback risk,” the risk that the insurers (Fannie Mae and HUD etc) and mortgage buyers would force them to buy back bad loans, is an important factor. A number of smaller banks indicated that they were even less likely now to approve a mortgage loan with a FICO score of 620, depending on the down payment. Some more banks were likely to approve a mortgage application with excellent credit (a FICO score of 720) and a 20% down payment. Surprise surprise. About a third of banks indicated that they were less likely to approve mortgages insured by the Federal Housing Administration with FICO scores of 580 or 620.

I really don’t have a problem with this thinking. You need to have at least decent credit or we end up right where we were a few years ago. Last fall, Bernanke said that mortgage lending standards appeared to be “overly tight.” That is, by the way, a “vague” term. It depends on HIS meaning of overly tight. While I agree that we have gone to the other end of the spectrum from a few years ago when if you could fog a mirror you got 100% financing to purchase a home, this is what happens. The banking system is trying to eliminate all risk in a risk based industry.

I really don’t think it’s difficult to get a loan these days. It is though difficult to document a loan. Some of the paper trails underwriters are demanding border on the ridiculous. I have a purchase where the buyer had a CD mature and transferred the funds from the investment account into their bank account for the down payment. No problem right? We have the statement showing the funds being transferred out and the other statement with the funds being transferred in. Should be good right? Oh no, the Underwriter wants a copy of the front and back of the check. Really??? Have we really gotten this anal that we need to document trivial things? The borrowers in this case have 790 credit scores great income and plenty of reserves, what a loan should be based on, or as the newly anointed by congress Consumer Finance Protection Bureau CFPB says, “the ability to repay the debt”. If an address shows up on a credit report that is not listed as owned on the application we have to provide a detailed explanation on when and why the client lived at the address even if it was 15 years ago. What does this have to do with the borrowers’ ability to repay the debt? And don’t get me started on the credit scoring system.

If you know anyone who can benefit from my services, please call me. My greatest goal is to see clients and friends happy. I guess that’s why I love providing mortgage financing. It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.